Merafe keeps payout momentum with 20c div

[miningmx.com] – FERROCHROME producer, Merafe Resources, said it would pay a R20m dividend to shareholders, delivering on a promise made last year that it would continue stable payouts to shareholders.

Announcing full-year results ended December 31, Merafe CEO, Zanele Matlala, said she was optimistic about the firm’s future prospects:

“Stainless steel production is forecasted to grow by 5% per annum in the foreseeable future and given that we’re the lowest cost producer in South Africa, and the second lowest in the world, we’re poised to take advantage of that demand,’ she told Miningmx.

The company, which holds a 20.5% share in a chrome and ferrochrome joint venture with Glencore, reported a 3% increase in revenue, mainly due to a 13% weakening in the rand/dollar exchange rate. Ferrochrome sales volumes for 2014 marginally increased to 316,000 tonnes, from 314,000 tonnes recorded in 2013.

Production and exports however were negatively influenced by strikes at Merafe’s Western mines, as well as unplanned and premature failures of furnaces at Merafe’s Lydenburg plant.

These factors had an unfavourable impact on the company’s headline earnings per share which were 8.4% for the year, some 22% lower than the previous period’s 10,8c/share.

Merafe financial director, Kajal Bissessor, said had it not for an increase in depreciation and higher borrowing and restructuring costs, as well as the strikes and unplanned maintenance costs, headline earnings per share would have actually been 20% higher year-on-year.

Merafe reported a cash flow of R306m, some 37% lower than the previous year’s R487m. Its total net debt increased by 6% year-on-year and now stands at R616m, compared to R581m in the previous period.

The company recently acquired a new debt facility with Absa and Standard Bank in the post balance sheet period, which replaced the previous R800m facility with Absa Bank.
Matlala pointed out that the new loan agreement was merely a replacement and that it was going to be used to fund general corporate requirements of the group. She was not concerned about Merafe’s ability to service the debt levels.

“We’re quite comfortable that we’d be able to service that level, especially now that there wouldn’t be much capital expenditure (following the completion of Lion II).

“For example, if you look at our cash flow at R306m and the fact that we don’t have any expansionary capex we should be able to service your debt quite comfortably.’

Merafe increased its ferrochrome stock, which translates to about 14 weeks of sales. This would enable the company to “comfortably fulfil its contractual obligations to customers”, in case of stoppages and electricity supply constraints.

“Because we’re a large consumer of electricity, we cannot put any contingency plans in place, should there be problems with electricity supply,” Jurg Zaayman, GM at Merafe, told Miningmx.

“We cannot use generators for example, as it wouldn’t make sense. But we work closely with Eskom and manage our business according to its schedules,” said Zaayman.

“If we know there’s a tough week ahead with electricity capacity, we will reduce when required and do some maintenance over such a period to make sure that over a longer period of time the impact on our production levels is as little as possible,” he said.

“Our surplus stock levels also help to offset the negative effect of load shedding,’ said Zaayman.